Goldman Just Spent $1 Billion To Prop Up Its Own Money Market Funds Amid Turmoil

In a sign of the times, Goldman injected more than $1 billion into a pair of prime money market products this week, following an exodus that found investors withdrawing a net $8.1 billion from the funds over a four-day period. That’s according to a disclosure.

The bank bought $722 million in assets from the Financial Square Money Market Fund and another $301 million from the Financial Square Prime Obligations Fund.

You’re reminded that the Fed’s crisis-era commercial paper facility (resurrected on Tuesday as the CP market froze) was initially castigated by some analysts for leaving money market funds in the lurch. Dealers could tell issuers to simply go knocking at the Fed, but money funds would still have a hard time finding someone to take their inventory if they needed to fund outflows.

“Money funds are still stuck,” BofA’s Mark Cabana said Tuesday. “They’re worried about runs.”

Ultimately, the Fed intervened just 30 minutes before midnight on Thursday, announcing a money market liquidity facility.

Under that facility, the Boston Fed will make loans to banks secured by assets purchased from money market mutual funds, the Fed said, in a statement – assets like those purchased by Goldman.

That’s not to say Goldman is going to post what it bought as collateral for Fed loans, or even that the securities they bought are eligible (I assume they may be, but I’m not going to take the time to check). The point is simply that you should connect the dots here.

Assets in money market funds as a group have obviously ballooned over the course of the market tumult, but as Deutsche Bank reminds you, “the overall figures hide a wide divergence between money market funds dedicated to government securities, which have seen almost +$400 billion flow in over three weeks, compared to prime funds, which have seen outflows of -$89 billion” over the period. $85 billion of that outflow came in the past week alone.

(Deutsche Bank)

The $85.4 billion outflow is the largest one-week exodus since October 2016.

As Deutsche went on to write Friday, the divergence in the chart “is reflected in the extreme stress in commercial paper markets”.

In a statement, Goldman said its purchases increased the two funds’ weekly liquid assets “to even higher levels to reassure fund shareholders of the funds’ liquidity”.

Specifically, following the trades, WLA for the Financial Square Money Market Fund was 42% (from 34%) and 49% for the Financial Square Prime Obligations Fund (from 44%). As of the close on Friday, those figures were 46% and 50%, respectively.

“These actions underscore our commitment to the GSAM funds providing liquidity to clients focused on the near-term implications of the current market environment”, David Fishman, head of Liquidity Solutions portfolio management in Goldman’s Asset Management unit said.

As Reuters helpfully reminds you, “SEC rules on weekly liquidity dictate that funds have to keep at least 30% of their portfolios in securities that can be converted to cash in five business days”.

Also this week, BNY intervened twice in the Dreyfus Cash Management fund, buying more than $2 billion in assets.

For those wondering, here’s what Goldman bought from the Financial Square Money Market Fund:

And here’s what they bought from the Financial Square Prime Obligations Fund: